Morningstar, FTSE Russell warn sustainable investments are being stymied by lack of reporting standards, data

Lack of objective and unified standards could complicate investment decisions and impede ESG disclosure and improvement incentives, IEEFA analyst says

A survey of 184 asset owners conducted by FTSE Russell shows sustainable investments face a data challenge

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Hong Kong’s Victoria Harbour. At least 40 per cent of Hong Kong-listed companies do not yet fulfil ISSB requirements, mainly due to a lack of awareness. Photo: Edmond So

Published: 2:00pm, 10 Oct 2022

The lack of consistent reporting standards and available data could hinder the adoption of sustainable investment strategies by asset owners, according to research providers and index compilers.

Sustainable investment strategies incorporate environmental, social and governance (ESG) factors with the aim of generating long-term financial returns. These factors figure prominently among asset owners in China, for instance, and they are more likely to measure the social effects of their investment portfolio, according to Morningstar.

Additionally, a lack of objective and unified standards could complicate investment decisions and impede ESG disclosure and improvement incentives, Hazel James Ilango, an energy finance analyst covering debt markets at Ohio-based Institute for Energy Economics and Financial Analysis (IEEFA), said in a report on Monday.

“Adopting universally accepted ESG disclosure frameworks …[will pave] the way for aligning ESG methodologies and converging ESG ratings,” Ilango said. This would also help investors make well-informed decisions by allowing for comparisons between companies from different sectors, regions and sizes, she added.

A survey of 184 asset owners conducted by index provider FTSE Russell released on Friday also found that sustainable investments face a data challenge. Half of the respondents surveyed pointed to the availability of ESG data and the use of estimated data as a barrier to increased sustainable investment adoption across all asset classes.

The lack of standardisation in ESG data, scores and ratings, as well as concerns about the lack of quality or consistency of corporate reporting and disclosures, were both ranked second at 41 per cent.